Rain Puts Grain Prices On Skids

Commodities Plunge On Cbot

June 30, 1988|By William B. Crawford Jr.

Futures prices for corn and soybeans plunged on the Chicago Board of Trade Wednesday, spurred by rainfall across the drought-stricken Midwest.

A chaotic selling wave occurred among speculators who sought to close their positions before commodities contracts expired. Market experts said the selloff caused huge losses for speculators mostly responsible for the recent runup in grain prices.

Most contracts for future deliveries of corn, oats and soybeans plunged their daily limits at the opening. But the limits on contracts for July delivery of grain and soybeans were removed Wednesday, pending their July 20 expiration, when shipments and deliveries of the commodities will have to be made.

Without those limits, July soybeans closed 83 1/2 cents a bushel below Tuesday`s settlement price; July corn was down 28 1/2 cents; and July oats were down 28 cents. For soybeans and corn, the drop was more than 8 percent.

Despite the selloff at the CBOT, commodity experts said that market fundamentals, including the weather, remain unchanged. They predicted that the market will again swing upward before the end of the week, noting that Wednesday`s rainfall had done little to rescue corn. The corn crop has begun to show damage as it nears the critical detasseling stage.

Also on Wednesday, the U.S. Department of Agriculture reported that prices farmers received for raw products in June rose 3.7 percent from May, a drought-spurred jump that carried the index up 6.9 percent from a year earlier.

The department`s Agricultural Statistics Board said in its preliminary report that higher prices for soybeans, corn and wheat contributed most to the June increase. Lower prices for cattle and peaches partly offset the rise in other commodities.

Richard Peterson, senior vice president and senior economist of Continental Illinois National Bank and Trust Co. of Chicago, said grain prices appear to have peaked.

``From now on, they won`t go up every day, the way they did,`` he said.

``They are at a very high level. We can expect to see a lot more movement, a lot of of fluctuation in prices.``

Peterson said there is a time lag in the Agriculture Department`s figures, so next month`s food price numbers could go higher because of the drought.

He noted that meat prices, which fell 4 percent, held down the latest increases.

``Don`t forget, the drop in meat prices is temporary, as farmers rush animals to market,`` he said. ``One of these days, meat prices will come back.``

Professor Haskel Benishay, an economist at the Kellogg Graduate School of Management at Northwestern University, said the food price increase is a one- time phenomenon ``tied to the drought, fear of the drought and gloom-and-doom forecasts.``

He said any food price increases this year are likely to be offset by lower oil prices, so inflation for 1988 is likely to be barely above last year`s rate of 4.4 percent.

The report said that most grain prices moved up sharply in June, reflecting the widespread drought. The average soybean price was at its highest level since May, 1977, and fifth highest on record.

Corn and wheat also moved up sharply to the highest levels since August, 1985, and May, 1984, respectively.

According to the preliminary June figures, based mostly on midmonth averages, the index for crop prices was up 10 percent from May and averaged 18 percent more than a year earlier.

Commenting on Wednesday`s CBOT action, Rich Feltes, a commodity expert at Refco Inc., said, ``We don`t think a lot has changed, despite the heavy selling. The rain is an anomaly. It is an anomaly, and we believe that the uptrend in prices will resume, if not by tomorrow, certainly by Friday.``

Feltes, however, advised caution for the would-be investor, suggesting that the recent market turbulence is not over.

``This market is not for the faint of heart,`` he said. ``It is for people with deep pockets, persons able to withstand considerable daily price swings.``

Cathy Leow, a vice president at Thompson McKinnon Securities Inc., in New York, said that the speculator, who has been responsible for the rise in soybeans to near historic levels of $10.99 a bushel, took a terrific beating with Wednesday`s falling prices.

``On Monday, November soybeans closed at $10.22 a bushel and right now they are at $9.32 a bushel so that is a loss of $4,500 a contract,`` said Leow.

At the close of trading, wheat was 17 to 19 1/4 cents lower with the contract for delivery in July at $3.54 a bushel; corn was 15 to 29 1/2 cents lower with July at $3.08; oats were 14 to 33 cents lower with July at $3.30;